Government bonds are safe instruments issued by the government at a fixed rate of interest for a certain number of years to finance various national projects and services. They are considered risk free because the government can raise money through taxes to pay off the bonds when the time comes to redeem them.        These bonds are issued by the government in its own currency.  The first ever government bond was issued by the British Government in 1693 to raise money for a war against France.  In England they are called Treasury Stock.

GOVERNMENT BONDS ARE ASSET BUILDERS

Government bonds or Treasury Stock as they are called in the United Kingdom are used to finance various national infrastructure projects.  Government bonds thus act as stimulants to an economy during difficult times. The money gathered from the sale of bonds is spent on gigantic projects of road building and construction of hydro-electric or nuclear power generating plants. The massive construction activity gives jobs to thousands who acquire spending money in the form of wages and salaries. The spending of these incomes on goods and services is expected to give a boost to the economy. This is what the government has done in the Unites States but the logic seems faulty in this case because the Federal Reserve is doing the buying.

BUNDS BILLS AND GILTS

Government bonds are issued by all governments of the world. In Canada they are well known as Canada Savings Bonds. In Germany they are known as Bunds.  In Italy they are known as BTPs. In France as BTFs. In Japan they are known as Japanese Government Bonds. In the United Kingdom they are known as Gilts. In America they are known as US Treasuries.  Governments make the Bonds attractive by making the interest earned on them tax free. Bonds are a very conservative and safe way of investment. At least the initial investment is always guaranteed by the government issuing them and so it is very safe. This is unlike shares which can be very volatile and sometimes lead to a total loss of capital.

HOT TIPS

The government bonds do grow at a slow and steady pace but one drawback is that inflation actually cuts the real value of the bonds on maturity. The problem here is that If inflation keeps rising the money received on maturity will buy less goods and services. The US government therefore issues a new kind of bond which is called TIPS. The acronym stands for Treasury Inflation-Protected Securities. TIPS earn a real rate of interest which is given twice a year to the Bond holder. Besides this the Consumer Price Index is linked to the Bond value and if the CPI rises the Bond is given additional value and in case the CPI falls the bond is lowered proportionately in value. The value of course can never go below the original investment. Thus loss in value because of inflation is taken care of in this government bond called TIPS.

People invest money according to their nature. Some people are high risk takers and they go for the stock market. Other people are perhaps wiser and keep their money in safe Government Bonds.

When deciding what can I claim on my taxes there are several deductions that many individuals overlook. A few of these include charitable noncash contributions, old points on refinancing, points on financing, education expenses, health insurance premiums, student higher education expenses, investment and tax expenses, energy savings home improvement credit, retirement tax credit and casualty deductions. These are just a few of the things that you can claim on your tax return and can bring you in big returns or at least big savings.

What can I claim on my taxes also depends on how you are filing, single, married, married but filing differently, whether you have kids or not and other similar situations. You can claim older disabled kids or elderly parents, adopted children or foster children that you care for out of your home. Normally you will so much per each dependent based on their age and how you care for them. You may be able to get up to $3000 for each qualifying child or dependent that you have under the age of 13 unless disabled.

Other things that you may want to claim on your tax return includes capital loss, dental and medical expenses, head of household, and business use of a car. As head of the household gives you the benefit of filing in a lower tax bracket. For capital loss it allows investors to claim capital loss on their tax filings and if the capital losses exceed the gains they may receive the difference up to $3000. For you to be eligible for the business travel deduction, the vehicle that you are using must be leased or owned. Repairs, gas, percentage of the mileage and other related expenses can be considered deductibles.

Dental and medical expenses are considered deductibles including eye surgery, prescription glasses, dentures, and hearing aids. Unfortunately things like toiletries, burial costs or medications purchased over the counter cannot be claimed as deductibles.

So if you are wondering what can I claim on my taxes and have a list of claims that you would like to use you will need to show proof of purchase in receipt form. Having proof of certain purchases is part of keeping good records so make sure to always document and save any type of purchases that may be used for claims on your taxes. If you are ever audited or want to file your taxes you will need to have the receipts. A professional accountant will ask for all of them in advance.

Pyramid selling schemes have been around for decades and many individuals have learned how to hide the true nature of their intentions. Many individuals also believe that multilevel marketing should also be considered pyramid selling and labeled as fraud. A pyramid selling scheme that ends in success usually use a fake but yet seemingly credible company with a very easy to under but yet sophisticated formula for earning money which is used in profiting.

So what is pyramid selling and how does the process work? The individual who decides to use pyramid selling will make a payment along with other investors that he recruits in what they think will be a profitable business idea, new products or services that they believe will double or triple their money. The individual who is setting up the pyramid selling scheme collects all of the money and encourages the investors to recruit new investors as well to allow them to get in on the idea and earn big money when this new idea goes big. When the new investors pay the amount that is required then again the original individual rakes in the money while he again encourages the new investors to recruit as well. It’s basically a never ending cycle and with each new investor they think they are putting in money on something that will make everyone a good profit. The only people really profiting is the originator of the pyramid selling scheme and a few of the top investors but as the amount of money stops coming in everyone else is left with nothing to show but a debit from their bank account.

So if someone has made you think what is pyramid selling by offering to help you make extra money you should avoid them at all cost. If you are contemplating on whether or not to get involved at least do the research needed to ensure you are advertising a real product, service or business before donating your hard earned money. No one wants to be scammed but unfortunately it does happen every day all around the world. Pyramid selling is a way for con artists to make some quick cash off of unsuspecting individuals such as old friends, family members or those who are vulnerable and will believe almost anything. Those individuals who are naive or the elderly are often targeted with pyramid selling schemes.

The mortgages that are purchased by Freddie Mac and Fannie Mae are then bundled together and sold as securities to investors.  The proceeds that result from selling the securities are then used to once again purchase more mortgages from lenders.  The entire process helps to provide both stability and liquidity to the financial and housing markets.  It provides the means for the origination of more loans and also helps to keep interest rates relatively low for borrowers.  Over half of all U.S. home loans are guaranteed by Freddie Mac and Fannie Mae, totalling over $5 trillion.

The secondary mortgage market was created during the Great Depression to respond to the housing crisis.  Due to the run on the banks and financial uncertainty, loans were not being originated.  Fannie Mae was formed in 1938 and was charged with buying mortgages from lenders and then reselling them to investors.  The ultimate goal was to make home ownership more widely available and affordable to more Americans.

Investors flocked to the securities due to the fact that they had the backing of the federal government as well as the strong underwriting standards.  Fannie Mae was privatized in 1968 due to the financial pressures caused by the Vietnam War, and in 1970 Freddie Mac (Federal Home Mortgage Corporation) was formed to compete with Fannie Mae.

Freddie Mac and Fannie Mae are government entities that are backed by the federal government, exempt from local and state taxes and have a line of credit with the Treasury Department.  Fannie Mae and Freddie Mac securities have historically been popular with investors due to the government backing which has helped to keep interest rates low and provide additional liquidity to the financial markets.

During recent years Freddie Mac and Fannie Mae became more involved in sub prime lending and took on higher risk mortgages.  During the recent sub prime mortgage crisis many of the mortgages ended up in foreclosure and the value of the Freddie Mac and Fannie Mae securities fell drastically.  This resulted in a housing and financial crisis.  The federal government intervened, and in the fall of 2008 Freddie Mac and Fannie Mae became conservatorships of the federal government.

One of the major financial indicators that lenders use in assessing risk is the loan to value ratio.  This financial ratio is a measurement of the proportion of loan amount to the recent sales price or appraised value of the property.  This financial ratio is derived by dividing the amount of the loan by the property’s value.  If the loan is for $80,000 and the property value is $100,000, the loan to value ratio is 80%.  The lower the loan to value ratio is, the more risk there is for the lender.

Another financial ratio used to evaluate risk is the combined loan to value ratio (CLTV).  This financial ratio measures the proportion of all the loans associated with the property versus the property’s value.  This ratio is useful if there is more than one loan (or lien) on the property.  There could be a home improvement loan or second mortgage in addition to the original mortgage.  To find the combined loan to value ratio, the amounts of all the loans are added together and then divided by the property’s value.

A higher down payment or larger equity in the property will result in a higher loan to value ratio and lower risk for the lender.  Mortgages with down payments of less than 20% will usually require the borrower to carry private mortgage insurance because of the higher risk.

Low loan to value ratio loans will require a better credit rating and have higher interest rates than high loan to value ratios.  Larger down payments will be required from higher risk borrowers.

When applying for a mortgage it is critical to understand how lenders evaluate and measure their risk in approving your loan.  The larger your down payment, the less risk the lender has to take.  In case of default, there will be more equity in the property than there would be on a loan with a low down payment.  In the event of a default on the property, the equity will help to offset any potential loss the lender may incur.  Therefore, the loan to value ratio plays an important role in the lender assessing their risk and approving your loan.

A car loan is another example of a secured loan.  The car is the collateral for the loan.  If the borrower does not make his or her car payments the lender has the legal right to repossess the car and sell it.  Secured loans generally have lower interest rates than unsecured loans due to the fact that there is collateral backing the loan.  The drawback to a secured loan is that you could potentially lose the collateral if you are unable to repay the loan.

Unsecured loans do not have any collateral acting as security on the loan.  The agreement is based on your promise to repay the loan to the borrower.  Unsecured loans are higher risk and come with much higher interest rates than secured loans.  One example of an unsecured loan is a credit card.  You do not have to put up any collateral in order to get a credit card, but you do need to go through an approval process where you income is verified and your credit history is checked.  The interest rate you pay will largely determined by your credit rating as well as your repayment history on previous loans.

Most major purchases such as a home or car usually require a secured loan.  You have use of the car and home as long as you make your payments on time.   Once you have the loan paid off the lien on the home or car is lifted and you own them outright.  If you fail to makes your payments and default on your loan, the lender has the right to take back the home or car and sell it in order to recover on the loan.

As an active real estate investor, managing the daily operations of property investments can be quite time consuming and labor intensive.  You will need to deal with tenants, repairs, maintenance, improvements and other aspects of managing property.  Active property investors also do not have the same opportunities to diversify their real estate investment portfolios to the same degree that a passive investor does investing in real estate investment trusts (REITs).

One advantage to being an active real estate investor is that you select the properties you want to invest in, whereas a passive real estate investor generally leaves that up to professional managers.  The big advantage to being an active real estate investor is that you have more control over the properties and can use your time and talents to improve the properties, thereby having the opportunity to earn a greater return than you might as a passive investor.  There are various forms of active real estate investment such as renting out property, developing land or flipping properties for quick profits.

A passive real estate investor does not buy and manage the properties directly but rather invests in a real estate partnership, limited liability company (LLC)  or real estate investment trust (REIT).  The advantage here is that the passive investor does not have to worry about the day to day management of the properties.  Another advantage to being a passive real estate investor is liquidity.  Real estate itself is an illiquid asset.  However many REIT shares are publicly traded, so the investor can sell them for cash, whereas an active real estate investor must sell the property itself.  Passive investing also has the benefit of diversification where an investor can invest in a partnership or REIT and have partial ownership in a variety of properties.

The major disadvantage of being a passive real estate investor is lack of control.  The passive investor does not actively pick the specific properties to invest in and does not have the opportunity to make direct improvements or add value to the properties through their own efforts.  This can result in lower profits than active real estate investing.

As an active real estate investor, managing the daily operations of property investments can be quite time consuming and labor intensive.  You will need to deal with tenants, repairs, maintenance, improvements and other aspects of managing property.  Active property investors also do not have the same opportunities to diversify their real estate investment portfolios to the same degree that a passive investor does investing in real estate investment trusts (REITs).

One advantage to being an active real estate investor is that you select the properties you want to invest in, whereas a passive real estate investor generally leaves that up to professional managers.  The big advantage to being an active real estate investor is that you have more control over the properties and can use your time and talents to improve the properties, thereby having the opportunity to earn a greater return than you might as a passive investor.  There are various forms of active real estate investment such as renting out property, developing land or flipping properties for quick profits.

A passive real estate investor does not buy and manage the properties directly but rather invests in a real estate partnership, limited liability company (LLC)  or real estate investment trust (REIT).  The advantage here is that the passive investor does not have to worry about the day to day management of the properties.  Another advantage to being a passive real estate investor is liquidity.  Real estate itself is an illiquid asset.  However many REIT shares are publicly traded, so the investor can sell them for cash, whereas an active real estate investor must sell the property itself.  Passive investing also has the benefit of diversification where an investor can invest in a partnership or REIT and have partial ownership in a variety of properties.

The major disadvantage of being a passive real estate investor is lack of control.  The passive investor does not actively pick the specific properties to invest in and does not have the opportunity to make direct improvements or add value to the properties through their own efforts.  This can result in lower profits than active real estate investing.

The reason that these guidelines are important is that conforming loans can be resold to Freddie Mac and Fannie Mae and jumbo loans cannot.  Conforming loans have lower interest rates.  It is very advantageous for lenders to be able to resell the mortgages to Freddie Mac and Fannie Mae, as it frees up their funds and allows them to originate more mortgages.  Freddie Mac and Fannie Mae purchase mortgages from savings and loans, banks and other lenders and then package them together and offer securities for sale to investors.  The proceeds from the sales are then used to purchase more mortgages. 

Because jumbo loans cannot be purchased by Freddie Mac and Fannie Mae, lenders must either carry these mortgages on their books or find private investors or investment groups to purchase them.  These loans are higher risk for lenders than conforming loans and therefore come with higher interest rates.  In the past, large investors like Merrill Lynch and Citicorp purchased these jumbo loans in the form of mortgage-backed securities which were then sold to hedge funds, pension plans and other institutional investors.  However, these opportunities are practically non-existent in today’s financial climate.  In most circumstances, lenders must carry these loans on their books and therefore are not originating as many jumbo loans.

Due to the tightening credit conditions, it is very important for borrowers to meet the established criteria set forth in the guidelines issued by Freddie Mac and Fannie Mae.  Borrowers with poor credit and high debt-to-income ratios may not always qualify for conforming loans.  In these circumstances the borrowers may be forced to seek a loan from portfolio lenders.  Portfolio lenders do not sell their loans in the secondary market.  They are high risk loans and carry high interest rates.  The difference in interest rates between conforming and jumbo loans has widened during the recent financial crisis and tightening credit conditions.  The federal government has recently passed legislation to help borrowers in areas where home values are high so that they can meet the loan amount criteria for conforming loans.

Term life insurance is for a person who is looking for low cost insurance coverage for a specific period of time.   The individual can choose the period of time they would like to have insurance coverage for.  This could be a term of anywhere from a year up to thirty years or more.  Once the term expires, the insured can either discontinue the policy or renew it.  If they decide to renew they may pay a higher premium based on their age, health or other factors.

If the insured dies within the term that is covered by the insurance policy, the death benefit will paid to the insured’s beneficiaries.  If the insured dies after the life insurance term has expired, no benefit will be paid.

Term life insurance is generally the least expensive type of life insurance.  There is no cash value to recover, it is straight coverage to pay a death benefit to the beneficiary in the event that the insured dies within the term period.

This form of life insurance is best suited for someone who is looking for inexpensive life insurance coverage for a specific period of  time.  Some people may want to invest in term life insurance while their children or young or have other obligations.  Others may invest in term insurance to pay for funeral or other specific expenses in the event of their death. 

The advantages of term life insurance are that it is affordable, renewable, flexible and easy to understand.  When the term life insurance coverage expires the insured has the option of reviewing their situation and renewing the policy, although they may end up paying higher premiums by doing it this way.  With whole life and other forms of insurance, the premium does not continue to rise each year the way it does with term insurance.  Many insurance companies also allow the insured to convert their term life insurance into a whole life insurance policy.  Therefore, a term life insurance policy does afford a great deal of flexibility which allows the individual the opportunity to review their financial and life circumstances and adjust their life insurance needs accordingly.